Euro growing against background of lower inflation and rate hike

02/01/2023

2 minutes read

2023.02.01 11:37

A quiet week has passed for, which has remained close to the 1.09 line. The lack of activity in the North American session may change quickly in response to the Fed’s rate announcement.

The Eurozone is expected to be 8.5% in January, which is lower than the consensus of 9.0% and is down from 9.2% in December. Energy costs, which increased by 17.2% in January compared to 25.5% in December, were the primary factor in the decline. Remained at 5.2 percent, slightly higher than the 5.1% consensus. In comparison to a gain of 0.6 percent in November, which was above the forecast of -0.2 percent, the monthly Core CPI fell by 0.8 percent.

The final important event before the on Thursday is the inflation report today. The cash rate will rise to 3.0%, which is almost a given, if the central bank decides to raise rates by 50 basis points. After that, the rate of monetary tightening will largely be determined by inflation levels and the strength of the economy in the eurozone.

The ECB will be pleased with the decrease in headline inflation, but it will be concerned about the stickier core rate. This week, Germany, the bloc’s locomotive, released disappointing numbers. crashed, registering a loss of 5.3% and a gain of -0.2%. The ECB will need to think about easing rates by 25 basis points rather than 50 basis points if the German numbers stay weak. The terminal rate is anticipated by the markets to be between 3.25 and 3.75 percent.

The Federal Reserve, which is widely anticipated to raise rates by 25 basis points, is the focus of all attention. The benchmark rate would rise to 4.75% as a result of this. In December, the US economy decelerated for the sixth month in a row, reaching a level of 6.5 percent. Although the Fed is reluctant to use the “P” word for fear of market overreaction, inflation appears to have reached its highest point.

The markets have priced in the Fed’s hawkish stance on rate levels to be higher than the Fed has been, so if Jerome Powell reaffirms this hawkish stance, the markets could be in for a cold shower that would be positive for the.